By Ndamu Sandu
Economic measures put in place by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya to drive economic growth will come to nothing in the absence of structural reforms, analysts have warned.
In his monetary policy statement released last week, Mangudya announced a raft of measures that included, among others, the extension of the $200 million interbank facility, putting caps on lending rates and bank charges to bolster confidence within the economy and to stimulate production and productivity across various sectors of the economy.
Mangudya said the measures were necessary as the country needed to pursue a new economic development model which was anchored on an export-led growth strategy to balance exports and imports while simultaneously addressing the structural rigidities besetting the economy in order to expand output.
Economists told Standardbusiness last week that Mangudya’s prescriptions gave temporary relief but would be meaningless in the absence of bold reforms by government to complement the monetary policy measures.
“Government has to make bold reforms on how it is spending money in the economy. The mismatch between expenditure and revenue has to be addressed,” an economist with a local bank said.
Government has been running budget deficits and financing the gaps through borrowing from the domestic market, thereby crowding out the private sector.
Another economist weighed in, saying whichever measure one puts in place “will have no effect until the structural issues have been attended to”.
“Whenever you put monetary measures to structural issues, it doesn’t work. Monetary policy is the engine oil in a car. The car will not move if it does not have fuel or wheels,” she said.
Businesses have in the past complained of unfriendly legislation and high costs of utilities which increase the cost of production and make local products uncompetitive. This has been compounded by the use of a strong currency, the United States dollar. RBZ has been advocating for internal devaluation as the use of the multicurrency regime makes the apex bank unable to devalue the currency and stimulate exports.
Zimbabwe National Chamber of Commerce CEO Chris Mugaga said Mangudya’s statement might be a good policy in a wrong environment.
“We are in a tough environment which needs robust structural changes. A depressed economy is managed better through fiscal policy,” he said.
Mangudya implored banks to ensure bond note-dollar parity by observing the policy to deposit bond notes into the dollar accounts without requesting the banking public to differentiate between bond notes and dollar cash.
The measure, Mangudya said, was essential to ensure that bond notes continued to trade at parity with the dollar and to reflect the fact that bond notes are supported by the $200 million offshore facility to support the demand for foreign exchange attributable to bond notes.
But a banker told Standardbusiness that the dollar-bond note parity would only be sustained if foreign currency was available.
“The issue of parity cannot go away until we address availability of foreign currency. If a number of companies are not accommodated [in the disbursement of dollars], they will resort to an alternative source which is the parallel market,” the banker said.
The banker said controls had become the main tool of the monetary policy, which he said was unhealthy.
Mugaga said the greatest worry would be when RBZ was forced to read the riot act on banks to ensure they adhered to the measures on cutting lending rates and bank charges.
He said it was “not sustainable in this environment” for banks to cut lending rates as they were under pressure.
But University of Zimbabwe economics lecturer Albert Makochekanwa said the high interest rates were discouraging companies from borrowing and fuelling high default rates.
“One of the major reasons why companies are not borrowing, even if the money is there, is because interest rates are high. It discourages companies from borrowing and at individual level it results in high non-performing loans.
The higher the interest rates, the higher the chances of people failing to pay,” said Makochekanwa, chair of the Economics Department at the University of Zimbabwe.
Mangudya said he was alive to the structural reforms required and urged government to complete the implementation of policy measures to address structural reforms. Of particular concern, he said, were structural reforms that related to the ease and cost of doing business, fiscal consolidation, state owned enterprises and incentives to expand output and productivity.
“These structural reforms are quite fundamental as they are the bedrock of achieving the supply-side development goal that is anchored on the need to balance exports and imports while simultaneously boosting domestic demand or output,” he said.
“This model requires significant levels of investment financed mainly through equity, as opposed to debt to mitigate against overgearing or leveraging the country. Addressing the structural reforms would therefore enhance business confidence and attract investment, both domestic and foreign investment.”
In the outlook, Mangudya said the mutually beneficial three-pronged policy approach relying on monetary, fiscal and structural policies being pursued by government and RBZ would go a long way in stimulating the economy and boosting productivity.